WASHINGTON — Comptroller of the Currency John C. Dugan told a House panel today that OCC supervision plays a unique and critical role in ensuring compliance with federal consumer protection standards, making it possible to identify and fix consumer compliance issues early and swiftly, before they become major problems.

"As a result, our compliance regime is not 'enforcement-only'," the Comptroller said. "Instead, it's better described as 'supervision first, enforcement if necessary' – with supervision addressing so many problems early that enforcement often is not necessary." His testimony pointed to subprime lending problems as clearly demonstrating the distinction: heavily regulated banks have had far fewer problems than lightly regulated mortgage lenders and brokers.

For that reason, he said, the number of formal enforcement actions taken by any bank supervisory agency is a misleading measure of the effectiveness of its consumer compliance regulation.

"Yet when we have needed to take strong enforcement action, the OCC has not hesitated to do so – often providing new standards to protect bank customers," he added.

The Comptroller also announced a new cooperative initiative with state agencies that aims to curb abuses by mortgage brokers.

The initiative involves parallel examinations of national banks, which are regulated by the OCC, and the mortgage brokers they use, which are regulated by the states. If either the OCC or the state agency finds evidence of practices inconsistent with the nontraditional mortgage guidance or the pending subprime mortgage guidance, that information will be shared with the other agency.

"This intersection of our regulatory jurisdictions provides a real and useful opportunity to coordinate our efforts – especially given the recent criticism of mortgage broker practices," he said in testimony before the House Financial Services Committee.

Although still in the early stages and limited in scope, the OCC and the Conference of State Bank Supervisors, which represents state banking departments, "believe this new initiative shows real promise," he added.

The Comptroller also discussed a recent Supreme Court decision dealing with national bank preemption. The decision in Watters vs. Wachovia, he said, doesn't mark a shift in law, but clarifies accountability.

"In particular, it makes clear that federal and state regulators both have important jobs to do, but they are different," he said. "Ours is to regulate and supervise national banks, for which we should be held accountable. Theirs is to regulate state-chartered entities, for which they should be held accountable."

The Comptroller said some have wrongly argued that both federal and state agencies should supervise national banks on the grounds that there can never be too many cops on the beat.

"We believe it's counterproductive for states to focus their finite enforcement resources on national banks that are already extensively regulated – especially when there are exclusively state-regulated entities, like many subprime lenders and mortgage brokers, that clearly have been the source of real problems," Mr. Dugan said.

"You can indeed have too many cops on the same beat if it means leaving other, more dangerous parts of the neighborhood unprotected," he added.

Mr. Dugan said consumers benefit most when state and federal regulators focus on their respective areas of jurisdiction and find productive ways to cooperate. The mortgage broker initiative is an example of such cooperation, as are the agreements the OCC has reached with a number of states to share information on consumer complaints.

The Comptroller suggested a number of improvements to federal consumer protection regulation, including:

Joint agency authority, including for the OCC, to write regulations defining "unfair and deceptive practices" applicable to banking organizations;

A requirement that an agency charged with writing consumer protection regulations consult, before issuing such regulations, with the regulators charged with implementing them;

A requirement that consumer protection regulations be revised and updated more regularly than they are now, in order for the regulations to keep pace with change; and

The development of a centralized Web site for complaints by consumers of any banking institution, regardless of charter, to help eliminate much of today's confusion.